EXHIBIT 99.1
EXCHANGE AGREEMENT
AGREEMENT, dated as of October 1, 2004, between Donini, Inc. (the
"Company"), a New Jersey corporation, and Global Capital Funding Group, L.P.
("Purchaser"), a Delaware limited partnership.
R E C I T A L S:
WHEREAS, the Company desires and Purchaser has agreed to exchange the
Convertible Note due June 7, 2007, made by the Company and held by Purchaser set
forth on Schedule 1.1 of this Agreement (the "Convertible Note") for the
Company`s $1,540,000.00 aggregate principal amount Secured Note due June 7, 2006
(the "Secured Note"), with terms and conditions as set forth in the form of
Secured Note attached hereto as Exhibit A;
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I. DEFINITIONS
Section 1.1 Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
"Agreement" means this Exchange Agreement, as amended, supplemented or
otherwise modified from time to time in accordance with its terms.
"Asset Sale" has the meaning set forth in Section 8.4.
"Balance Sheet Date" has the meaning set forth in Section 4.7.
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 4.9(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Change in Control" means (i) after the date of this Agreement, any person
or group of persons (within the meaning of Sections 13 and 14 of the Exchange
Act and the rules and regulations of the Commission relating to such sections)
other than Purchaser shall have acquired beneficial ownership (within the
meaning of Rules 13d-3 and 13d-5 promulgated by the Commission pursuant to the
Exchange Act) of 33a% or more of the outstanding shares of Common Stock of the
Company; (ii) any sale or other disposition (other than by reason of death or
disability) to any Person by any executive officers and/or employee directors of
the Company without prior written consent of Purchaser; (iii) individuals
constituting the Board of Directors of the Company on the date hereof (together
with any new Directors whose election by such Board of Directors or whose
nomination for election by the shareholders of the Company was approved by a
vote of at least 50.1% of the Directors still in office who are either Directors
as of the date hereof or whose election or nomination for election was
previously so approved), cease for any reason to constitute at least two-thirds
of the Board of Directors of the Company then in office.
"Closing Date" means the date hereof.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning set forth in the Security Agreement.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, $0.001 par value per share, of the
Company.
"Company" means Donini, Inc., a New Jersey corporation, and its successors.
"Company Corporate Documents" means the certificate of incorporation and
bylaws of the Company.
"Consolidated Net Worth" means at any date the total shareholder`s equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person or
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
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"Control" (including, with correlative meanings, the terms"Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Convertible Note" has the meaning set forth in the recitals to this
Agreement.
"Deadline" has the meaning set forth in Section 10.1.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivative Securities" has the meaning set forth in Section 8.6.
"Discounted Equity Offerings" has the meaning set forth in Section 8.6.
"Directors" means the individuals then serving on the Board of Directors or
similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
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"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing" means a public or private financing consummated (meaning
closing and funding) through the issuance of debt or equity securities (or
securities convertible into or exchangeable for debt or equity securities) of
the Company, other than Permitted Financings.
"Fixed Price(s)" has the meaning set forth in Section 11.1.
"Formula Price" has the meaning set forth in Section 3.4 (a).
"GAAP" has the meaning set forth in Section 1.2.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any derivative or fraction thereof), defined or
regulated as such in or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 4.20.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means any lien, mechanic`s lien, materialmen`s lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction,
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security interest or other adverse claim, whether arising by contract or under
law or otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Majority Holders" means (i) as of the Closing Date, Purchaser and (ii) at
any time thereafter, the holders of more than 50% in aggregate principal amount
of the Secured Note.
"Maturity Date" shall mean the date of maturity of the Secured Note.
"NASD" has the meaning set forth in Section 7.10.
"Nasdaq Market" means the Nasdaq Stock Market`s National Market System.
"National Market" means the Nasdaq Market, the Nasdaq Small Cap Market, the
New York Stock Exchange, Inc. or the American Stock Exchange, Inc.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters` fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, and (ii) in the case of dispositions of assets, (A) actual transfer
taxes (but not income taxes) payable with respect to such dispositions, and (B)
the amount of Debt, if any, secured by a Lien on the asset or assets disposed of
and required to be, and actually repaid by the Company or any Subsidiary in
connection therewith, and any trade payables specifically relating to such asset
or assets sold by the Company or any Subsidiary that are not assumed by the
purchaser of such asset or assets.
"Non-Recourse Financing" means Debt of the Company or any Subsidiary which,
by its terms, bars the Lender thereof from any action against the Company or any
Subsidiary, as borrower or guarantor, if the security value of the project or
asset pledged in respect thereof falls below the amount required to pay such
Debt.
"Officer`s Certificate" shall mean a certificate executed by the president,
chief executive officer or chief financial officer of the Company in the form of
Exhibit D attached hereto.
"OTC Bulletin Board" means the over-the-counter bulletin board operated by
the NASD.
"Other Taxes" has the meaning set forth in Section 3.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
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"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Permitted Financings" has the meaning set forth in Section 10.5.
"Person" means an individual, corporation, partnership, trust, incorporated
or unincorporated association, joint venture, joint stock Company, government
(or any agency or political subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is maintained, or contributed to, by any member of the ERISA
Group for employees of any member of the ERISA Group or (ii) has at any time
within the preceding five years been maintained, or contributed to, by any
Person which was at such time a member of the ERISA Group for employees of the
Person which was at such time a member of the ERISA Group.
"Purchaser" means Global Capital Funding Group, L.P. and its successors and
assigns, including holders from time to time of the Secured Note.
"Recourse Financing" means Debt of the Company or any Subsidiary which, by
its terms, does not bar the lender thereof from action against the Company or
any Subsidiary, as borrower or guarantor, if the security value of the project
or asset pledged in respect thereof falls below the amount required to repay
such Debt.
"Redemption Event" has the meaning set forth in Section 3.4.
"Registrable Securities" has the meaning set forth in Section 10.4(a).
"Registration Default" has the meaning set forth in Section 10.4(e).
"Registration Maintenance Period" has the meaning set forth in Section
10.4(e).
"Registration Statement" has the meaning set forth in Section 10.4(b).
"Registration Rights Agreement" means the agreement between the Company and
Purchaser dated the date hereof substantially in the form set forth in Exhibit B
attached hereto.
"Required Effectiveness Date" has the meaning set forth in Section 10.4(b).
"Reserved Amount" has the meaning set forth in Section 7.10(a).
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"Restricted Payment" means, with respect to any Person, (i) any dividend or
other distribution on any shares of capital stock of such Person (except
dividends payable solely in shares of capital stock of the same or junior class
of such Person and dividends from a wholly-owned direct or indirect Subsidiary
of the Company to its parent corporation), (ii) any payment on account of the
purchase, redemption, retirement or acquisition of (a) any shares of such
Person`s capital stock or (b) any option, warrant or other right to acquire
shares of such Person`s capital stock or (iii) any loan, or advance or capital
contribution to any Person (a "Stockholder") owning any capital stock of such
Person other than relocation, travel or like advances to officers and employees
in the ordinary course of business, and other than reasonable compensation as
determined by the Board of Directors.
"Rights Offering" has the meaning set forth in Section 11.3.
"Sale Event" has the meaning set forth in Section 3.4.
"SEC Reports" shall have the meaning set forth in Section 7.1(a).
"Securities Act" means the Securities Act of 1933, as amended.
"Security Agreement" means the Amendments to the Pledge and Security
Agreements between the Company and Purchaser dated the date hereof substantially
in the form of Exhibit E attached hereto.
"Securities" means the Secured Note, and, as applicable, the Warrants and
the Warrant Shares.
"Share Reorganization" has the meaning set forth in Section 11.2.
"Solvency Certificate" shall mean a certificate executed by the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts, all after giving effect to the
issuance and sale of the Secured Note and the completion of the offering
(including without limitation the payment of any fees or expenses in connection
therewith), which such Solvency Certificate shall be in the form of Exhibit C
attached hereto.
"Special Distribution" has the meaning set forth in Section 11.4.
"Subsidiary" has the meaning set forth in Section 4.27.
"Subsidiary Corporate Documents" means the certificates of incorporation
and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.6.
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"Trading Day" shall mean any Business Day in which the Nasdaq Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Secured Note, the
Registration Rights Agreement, the Security Agreement and the other agreements
contemplated by this Agreement.
"Transfer" means any disposition of Securities that would constitute a sale
thereof under the Securities Act.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrant" means the Common Stock Purchase Warrant dated as of June 7, 2004
to Purchaser by the Company.
Section 1.2 Accounting Terms and Determinations. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made, and all financial statements required to
be delivered hereunder shall be prepared, in accordance with generally accepted
accounting principles as in effect from time to time, applied on a consistent
basis (except for changes concurred in by the Company`s independent public
accountants) ("GAAP"). All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated.
ARTICLE II. EXCHANGE OF SECURITIES
Section 2.1 Exchange of Securities. Subject to the terms and conditions set
forth herein, the Purchaser agrees to exchange the Convertible Note due June 7,
2007, and the Company agrees to issue to Purchaser the Secured Note in the
aggregate principal amount of One Million Five Hundred Forty Thousand Dollars
($1,540,000.00).
Section 2.2 Closing.
(a) The Purchaser shall deliver to the Company the Convertible Note
on the Closing Date in exchange for the Secured Note.
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(b) The Secured Note issued on the Closing Date shall be dated the
date hereof and interest shall begin to accrue in accordance with the terms
thereof.
ARTICLE III. PAYMENT TERMS OF SECURED NOTE
Section 3.1 Payment of Principal and Interest; Payment Mechanics. The
Company will pay all amounts due on each Secured Note by the method and at the
address specified for such purpose by Purchaser in writing, without the
presentation or surrender of any Secured Note or the making of any notation
thereon, except that upon written request of the Company made concurrently with
or reasonably promptly after payment or prepayment in full of this Secured Note,
the holder shall surrender the Secured Note for cancellation, reasonably
promptly after any such request, to the Company at its principal executive
office. The Secured Note shall rank senior in respect to any other indebtedness
of the Company outstanding as of the Closing Date or incurred hereafter. Prior
to any sale or other disposition of any Secured Note, the holder thereof will,
at its election, either endorse thereon the amount of principal paid thereon and
the last date to which interest has been paid thereon or surrender the Secured
Note to the Company in exchange for a new Secured Note or Secured Note. The
Company will afford the benefits of this Section 3.1 to any direct or indirect
transferee of the Secured Note purchased under this Agreement and that has made
the same agreement relating to this Secured Note as Purchaser has in this
Section 3.1; provided that such transferee is an "accredited investor" under
Rule 501 of the Securities Act.
Section 3.2 Payment of Interest. Intentionally omitted.
Section 3.3 Voluntary Prepayment. For so long as no Event of Default shall
have occurred and is continuing, the Company may, at its option, repay, in whole
or in part, the Secured Note, in accordance with Sections 3 and 5.1 of Exhibit A
hereto, following at least seven (7) Business Days prior written notice to
Purchaser (the expiration date of such seven (7) Business Day period being
referred to as the "prepayment date"); provided, however, that if such date is
not a Business Day, the prepayment date shall be the next Business Day
thereafter.
Section 3.4 Mandatory Prepayments.
(a) Upon (i) the occurrence of a Change in Control of the Company,
(ii) a transfer of all or substantially all of the assets of the Company to
any Person in a single transaction or series of related transactions, (iii)
a consolidation, merger or amalgamation of the Company with or into another
Person in which the Company is not the surviving entity (other than a
merger which is effected solely to change the jurisdiction of incorporation
of the Company and results in a reclassification, conversion or exchange of
outstanding shares of Common Stock solely into shares of Common Stock)
(each of items (i), (ii) and (iii) being referred to as a "Sale Event"), or
(iv) the occurrence of a Registration Default which continues uncured for a
period of twenty (20) days, then, in each case, the Company shall, upon
request of the Majority Holders, redeem the Secured Note, subject to the
provisions of Section 5 of the
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Secured Note. The redemption price payable upon any such redemption shall
be the Redemption Price in Section 5 of the Secured Note (referred to
herein as the "Formula Price").
(b) At the option of Purchaser, upon the consummation of one or more
Financings except a Permitted Financing, the Company shall use 25% of the
Net Cash Proceeds therefrom (unless such Net Cash Proceeds from each such
Financing is less than $250,000) to redeem the Secured Note.
Section 3.5 Prepayment Procedures.
(a) Any permitted prepayment or redemption of the Secured Note
pursuant to Sections 3.3 or 3.4 above shall be deemed to be effective and
consummated (for purposes of determining the Formula Price and the time at
which Purchaser shall thereafter not be entitled to deliver a Notice of
Conversion for the Secured Note) as follows:
(i) A prepayment pursuant to Section 3.3, the "prepayment
date" specified therein;
(ii) A redemption pursuant to Section 3.4(a), the date of
consummation of the applicable Sale Event or the Registration Default;
and
(iii) A redemption pursuant to Section 3.4(b), three (3)
Business Days following the date of consummation of the applicable
Financing (meaning closing and funding).
(b) On the Maturity Date and on the effective date of a prepayment
or redemption of the Secured Note as specified in Section 3.5(a) above, the
Company shall deliver by wire transfer of funds the prepayment/redemption
price to Purchaser of the Secured Note subject to prepayment or redemption.
Should Purchaser not receive payment of any amounts due on prepayment or
redemption of its Secured Note by reason of the Company`s failure to make
payment at the times prescribed above for any reason, the Company shall pay
to the applicable holder on demand (x) interest on the sums not paid when
due at an annual rate equal to the greater of (I) the maximum lawful rate
and (II) 18% per annum, compounded at the end of each thirty (30) days,
until the applicable holder is paid in full and (y) all costs of
collection, including, but not limited to, reasonable attorneys` fees and
costs, whether or not suit or other formal proceedings are instituted.
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Section 3.6 Payment of Additional Amounts.
(a) Any and all payments by the Company hereunder or under the Secured
Note to Purchaser and each "qualified assignee" thereof shall be made free
and clear of and without deduction or withholding for any and all present
or future taxes, levies, imposts, deductions, charges or withholdings, and
all liabilities with respect thereto (all such taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes") unless such Taxes are required by law or the
administration thereof to be deducted or withheld. If the Company shall be
required by law or the administration thereof to deduct or withhold any
Taxes from or in respect of any sum payable under the Secured Note (i) the
holders of the Secured Note subject to such Taxes shall have the right, but
not the obligation, for a period of thirty (30) days commencing upon the
day it shall have received written notice from the Company that it is
required to withhold Taxes to transfer all or any portion of the Secured
Note to a qualified assignee to the extent such transfer can be effected in
accordance with the other provisions of this Agreement and applicable law;
(ii) the Company shall make such deductions or withholdings; (iii) the sum
payable shall be increased as may be necessary so that after making all
required deductions or withholdings (including deductions or withholdings
applicable to additional amounts paid under this Section 3.6) Purchaser
receives an amount equal to the sum it would have received if no such
deduction or withholding had been made; and (iv) the Company shall
forthwith pay the full amount deducted or withheld to the relevant taxation
or other authority in accordance with applicable. A "qualified assignee" of
a Purchaser is a Person that is organized under the laws of (i) the United
States or (II) any jurisdiction other than the United States or any
political subdivision thereof and that (y) represents and warrants to the
Company that payments of the Company to such assignee under the laws in
existence on the date of this Agreement would not be subject to any Taxes
and (z) from time to time, as and when requested by the Company, executes
and delivers to the Company and the Internal Revenue Service forms, and
provides the Company with any information necessary to establish such
assignee`s continued exemption from Taxes under applicable law.
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as
"Other Taxes") which arise from any payment made under any of the
Transaction Agreements or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement other than Taxes payable
solely as a result of the transfer from Purchaser to a Person of any
Security.
(c) The Company shall indemnify Purchaser, or qualified assignee,
for the full amount of Taxes or Other Taxes (including, without limitation,
any Taxes or Other Taxes imposed by any jurisdiction on amounts payable
under this Section 3.6) paid by Purchaser, or qualified assignee, and any
liability (including penalties, interest and expenses) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes were
correctly
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or legally asserted. Payment under this indemnification shall be made
within 30 days from the date Purchaser or assignee makes written demand
therefor. A certificate as to the amount of such Taxes or Other Taxes
submitted to the Company by Purchaser or qualified assignee shall be
conclusive evidence of the amount due from the Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the
Company will furnish to Purchaser the original or a certified copy of a
receipt evidencing payment thereof.
(e) Purchaser shall provide to the Company a form W-8, stating that
it is a non- U.S. person, together with any additional tax forms which may
be required under the Code, as amended after the date hereof, to allow
interest payments to be made to it without deduction.
ARTICLE IV. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Purchaser as of the Closing Date the
following:
Section 4.1 Organization and Qualification. The Company and each Subsidiary
is a corporation (or other legal entity) duly organized, validly existing and in
good standing under the laws of its jurisdiction of incorporation, with full
power and authority to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
The Company and each subsidiary is qualified to conduct business as a foreign
corporation and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except where
such failure would not have a Material Adverse Effect. A "Material Adverse
Effect" means any material adverse effect on the operations, results of
operations, properties, assets or condition (financial or otherwise) of the
Company or the Company and its Subsidiaries, taken as a whole, or on the
transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith.
Section 4.2 Authorization and Execution.
(a) The Company and each Subsidiary, as applicable, has all
requisite corporate power and authority to enter into and perform each
Transaction Agreement and to consummate the transactions contemplated
hereby and thereby and to issue the Securities in accordance with the terms
hereof and thereof.
(b) The execution, delivery and performance by the Company and each
Subsidiary, as applicable, of each Transaction Agreement and the issuance
by the Company of the Securities, have been duly and validly authorized by
the Board of Directors of the Company and each Subsidiary, as applicable,
and no further consent or authorization of the Company or its Subsidiaries,
their Board of Directors or the Company`s shareholders is required.
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(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the Transaction Agreements will constitute,
a valid and binding agreement of the Company and each Subsidiary, as
applicable, in each case enforceable against the Company and each
Subsidiary, as applicable, in accordance with its respective terms.
Section 4.3 Capitalization. As of the date hereof, the authorized, issued
and outstanding capital stock of the Company is as set forth on Schedule 4.3
hereto and except as set forth on Schedule 4.3 no other shares of capital stock
of the Company will be outstanding as of the Closing Date. All of such
outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or similar rights of the
shareholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. Other than as set forth on Schedule
4.3 hereto, as of the date hereof, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, and (ii) there are no agreements or arrangements
under which the Company or any of its Subsidiaries are obligated to register the
sale of any of its or their securities under the Securities Act (except pursuant
to the Registration Rights Agreement) and (iii) there are no anti-dilution or
price adjustment provisions contained in any security issued by the Company (or
in any agreement providing rights to security holders) that will be triggered by
the issuance of the Secured Note, Warrant or Warrant Shares. The Company has
furnished to Purchaser true and correct copies of the Company`s Corporate
Documents, and the terms of all securities convertible into or exercisable for
Common Stock and the material rights of the holders thereof in respect thereto.
Section 4.4 Governmental Authorization. The execution and delivery by the
Company of the Transaction Agreements does not and will not, the issuance and
sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
(c) listing applications ("Listing Applications") to be filed with the OTC
Bulletin Board or the National Market relating to the Warrant Shares issuable
upon conversion of the Secured Note and (d) the filing of a "Form D" as
described in Section 7.13 below.
13
Section 4.5 Issuance of Shares. Upon conversion in accordance with the
terms of the Warrant, the Warrant Shares shall be duly and validly issued and
outstanding, fully paid and nonassessable, free and clear of any Taxes, Liens
and charges with respect to issuance other than those created by Purchaser and
shall not be subject to preemptive rights or similar rights of any other
shareholders of the Company. Assuming the representations and warranties of
Purchaser herein are true and correct in all material respects, each of the
Securities will have been issued in material compliance with all applicable U.S.
federal and state securities laws. The Company understands and acknowledges
that, in certain circumstances, the issuance of Warrant Shares could dilute the
ownership interests of other shareholders of the Company. The Company further
acknowledges that its obligation to issue Warrant Shares upon exercise of the
Warrant is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other shareholders of the
Company.
Section 4.6 No Conflicts. The execution and delivery by the Company of the
Transaction Agreements to which it is a party did not and will not, the issuance
and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation known by the
Company to be applicable to it, (ii) the Company Corporate Documents, (iii) any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Company or any Subsidiary or any of their respective assets, or result in
the creation or imposition of any Lien on any asset of the Company or any
Subsidiary except those created by the Transaction Agreements. The Company and
each Subsidiary is in compliance with and conforms to all statutes, laws,
ordinances, rules, regulations, orders, restrictions and all other legal
requirements of any domestic or foreign government or any instrumentality
thereof having jurisdiction over the conduct of its businesses or the ownership
of its properties, except where such failure would not have a Material Adverse
Effect.
Section 4.7 Financial Information. Since August 31, 2004 (the "Balance
Sheet Date"), except as disclosed in Schedule 4.7, there has been (x) no
material adverse change in the assets or liabilities, or in the business or
condition, financial or otherwise, or in the results of operations or prospects,
of the Company and its Subsidiaries, whether as a result of any legislative or
regulatory change, revocation of any license or rights to do business, fire,
explosion, accident, casualty, labor trouble, flood, drought, riot, storm,
condemnation, act of God, public force or otherwise and (y) no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations or prospects, of the Company and
its subsidiaries except in the ordinary course of business; and to the knowledge
of the Company no fact or condition exists or is contemplated or threatened
which might cause such a change in the future. The audited consolidated balance
sheets of the Company and its Subsidiaries for the period ending May 31, 2002
and 2003, and the related consolidated statements of income, changes in
shareholders` equity and changes in cash flows for the periods then ended,
including the footnotes thereto, except as indicated therein, (i) complied in
all material respects with applicable accounting requirements and (ii) have been
prepared in accordance with GAAP consistently applied throughout the periods
indicated,
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except that the unaudited financial statements do not contain notes and may be
subject to normal audit adjustments and normal annual adjustments. Such
financial statements fairly present the financial condition of the Company and
its Subsidiaries at the dates indicated and the consolidated results of their
operations and cash flows for the periods then ended and, except as indicated
therein, reflect all claims against and all Debts and liabilities of the Company
and its Subsidiaries, fixed or continency required to be reflected therein.
Section 4.8 Litigation. Except as set forth on Schedule 4.8, there is no
action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could be reasonably expected to have a
Material Adverse Effect or which challenges the validity of any Transaction
Agreements.
Section 4.9 Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Code in respect of any Plan, (ii) failed to make any required contribution or
payment to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement, which as
resulted or could result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Code or (iii) incurred any liability under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
15
Section 4.10 Environmental Matters. The costs and liabilities associated
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a material adverse effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the Company
or any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
Section 4.11 Taxes. All United States federal, state, county, municipality,
local or foreign income tax returns and all other material tax returns
(including foreign tax returns) which are required to be filed by or on behalf
of the Company and each Subsidiary have been filed and all material taxes due
pursuant to such returns or pursuant to any assessment received by the Company
and each Subsidiary have been paid except those being disputed in good faith and
for which adequate reserves have been established. The charges, accruals and
reserves on the books of the Company and each Subsidiary in respect of taxes and
other governmental charges have been established in accordance with GAAP.
Section 4.12 Investments, Joint Ventures. Other than as set forth in
Schedule 4.12, the Company has no other direct or indirect Investment in any
Person, and the Company is not a party to any partnership, management,
shareholders` or joint venture or similar agreement.
Section 4.13 Not an Investment Company. Neither the Company nor any
Subsidiary is an "Investment Company" within the meaning of Investment Company
Act of 1940, as amended.
Section 4.14 Full Disclosure. The information heretofore furnished by the
Company to Purchaser for purposes of or in connection with this Agreement or any
transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to Purchaser will not (in each case
taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
Section 4.15 No Solicitation; No Integration with Other Offerings. No form
of general solicitation or general advertising was used by the Company or, to
the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities. Neither the
Company, nor, to its knowledge, any Person acting on behalf of the Company, has,
either directly or indirectly, sold or offered for sale to any Person (other
than Purchaser) any of the Securities or, within the six months prior to the
date hereof, any other similar security of the Company except as contemplated by
this Agreement, and the Company represents that neither itself nor any Person
authorized to act on its behalf (except that the Company makes no representation
as to Purchaser and their Affiliates) will sell or offer for sale any such
security to, or solicit any offers to buy any such security from, or otherwise
approach or negotiate in respect thereof with, any Person or Persons so as
thereby to cause the issuance or sale of any of the Securities to be in
violation of any of the provisions of Section 5 of the Securities Act. The
issuance of the Securities to Purchaser will
16
not be integrated with any other issuance of the Company`s securities (past,
current or future) which requires stockholder approval under the rules of the
any National Market.
Section 4.16 Permits. (a) Each of the Company and its Subsidiaries has all
material Permits; (b) all such Permits are in full force and effect, and each of
the Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice of lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit; and (d) the Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit, except in each case or in the aggregate that could
not be reasonably expected to have a Material Adverse Effect.
Section 4.17 Leases. Neither the Company nor any Subsidiary is a party to
any capital lease obligation with a value greater than $250,000 or to any
operating lease with an aggregate annual rental greater than $250,000 during the
life of such lease.
Section 4.18 Absence of Any Undisclosed Liabilities or Capital Calls. There
are no liabilities of the Company or any Subsidiary of any kind whatsoever,
whether accrued, contingent, absolute, determined, determinable or otherwise,
and there is no existing condition, situation or set of circumstances which
would reasonably be expected to result in such a liability, other than (i) those
liabilities provided for in the financial statements delivered pursuant to
Section 4.7 and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect.
Section 4.19 Public Utility Holding Company. Neither the Company nor any
Subsidiary is, or will be upon issuance and sale of the Securities and the use
of the proceeds described herein, subject to regulation under the Public Utility
Holding Company Act of 1935, as amended, the Federal Power Act, the Interstate
Commerce Act or to any federal or state statute or regulation limiting its
ability to issue and perform its obligations under any Transaction Agreement.
Section 4.20 Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
to the knowledge of the Company, patents, trademarks, trade names, copyrights,
technology, know-how and processes (collectively, "Intellectual Property") used
in, or necessary for the conduct of its business; no claims have been asserted
by any Person to the use of any such Intellectual Property or challenging or
questioning the validity or effectiveness of any license or agreement related
thereto. To the best of Company`s and its Subsidiaries` knowledge, there is no
valid basis for any such claim and the use of such Intellectual Property by the
Company and its Subsidiaries will not infringe upon the rights of any Person.
Section 4.21 Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the
17
Company and its Subsidiaries are in full force and effect and there are no past
due premiums in respect of any such insurance.
Section 4.22 Title to Properties. The Company and its Subsidiaries have
good and marketable title to all their respective properties reflected on the
financial statements referred to in Section 4.7, free and clear of all Liens
superior to Purchaser.
Section 4.23 Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company`s Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with managements`
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management`s general or specific authorization, and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
Section 4.24 Reserved.
Section 4.25 Foreign Practices. Neither the Company nor any of its
Subsidiaries nor, to the Company`s knowledge, any employee or agent of the
Company or any Subsidiary has made any payments of funds of the Company or
Subsidiary, or received or retained any funds, in each case in violation of any
law, rule or regulation.
Section 4.26 Title to Certain Assets. The Company owns the assets
designated as collateral and described on Exhibit A to the Security Agreement,
free and clear of any lien.
Section 4.27 Subsidiaries. Except for the directly and indirectly owned
subsidiaries of the Company as set forth on Schedule 4.27 (the "Subsidiaries"),
the Company does not own or hold any shares of stock or any other security or
interest in any other equity, or any rights to acquire any such security or
interest. Except for the Subsidiaries disclosed on Schedule 4.27, the Company
has never had any subsidiary corporation of which the securities having a
majority of voting power in electing the board of directors or representing a
majority of the economic interests were, at the time as of which any
determination was made, owned by the Company either directly or indirectly. The
number of authorized, issued and outstanding shares of capital stock of the
Subsidiaries is as set forth on Schedule 4.27. All outstanding shares of the
Subsidiaries capital stock are validly issued, fully paid and nonassessable, are
free from, and were not issued in violation of any preemptive rights, and are
owned of record and beneficially by the Company.
18
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 5.1 Purchaser. Purchaser hereby represents and warrants to the
Company that:
(a) Purchaser is an "accredited investor" within the meaning of Rule
501(a) under the Securities Act and the Securities to be acquired by it
pursuant to this Agreement are being acquired for its own account and, as
of the date hereof, not with a view toward, or for sale in connection with,
any distribution thereof except in compliance with applicable United States
federal and state securities law; provided that the disposition of
Purchaser`s property shall at all times be and remain within its control;
(b) the execution, delivery and performance of this Agreement and
the exchange of the Securities pursuant thereto are within Purchaser`s
corporate or partnership powers, as applicable, and have been duly and
validly authorized by all requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by
Purchaser;
(d) the execution and delivery by Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or
constitute a default under or violation of (i) any provision of applicable
law or regulation, or (ii) any agreement, judgment, injunction, order,
decree or other instrument binding upon Purchaser;
(e) Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold
except as specified in this Agreement or the remaining Transaction
Agreements;
(f) this Agreement constitutes a valid and binding agreement of
Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable principles
of general applicability;
(g) Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of
its investment in the Securities and Purchaser is capable of bearing the
economic risks of such investment;
(h) Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations
on transfer described herein; Purchaser has been afforded access to
information about the Company and the financial condition, results of
operations, property, management and prospects of the Company sufficient to
enable it to evaluate its
19
investment in the Securities; Purchaser has been afforded the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of
the offering of the Securities and the merits and the risks of investing in
the Securities; and Purchaser has been afforded the opportunity to obtain
such additional information which the Company possesses or can acquire that
is necessary to verify the accuracy and completeness of the information
given to Purchaser concerning the Company. The foregoing does not in any
way relieve the Company of its representations and other undertakings
hereunder, and shall not limit Purchaser`s ability to rely thereon; and
(i) no part of the source of funds used by Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained
by Purchaser in which any employee benefit plan (or its related trust) has
any interest.
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
Section 6.1 Conditions Precedent to Purchaser`s Obligations to Purchase.
The obligation of Purchaser hereunder to exchange the Secured Note at the
Closing is subject to the satisfaction, on or before the Closing Date, of each
of the following conditions, provided that these conditions are for Purchaser`s
sole benefit and may be waived by Purchaser at any time in its sole discretion:
(a) The Company and each Subsidiary, as required, shall have duly
executed this Agreement, the Registration Rights Agreement, and the
Security Agreement and all other appropriate financing statements, and
delivered the same to Purchaser;
(b) The Company shall have delivered to Purchaser a duly executed
certificate representing the Secured Note in accordance with Section 2.3
hereof;
(c) The Company shall have delivered the Solvency Certificate;
(d) The representations and warranties of the Company and its
Subsidiaries contained in each Transaction Agreement shall be true and
correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specified date) and the Company and its
Subsidiaries shall have performed, satisfied and complied with all
covenants, agreements and conditions required by such Transaction
Agreements to be performed, satisfied or complied with by them at or prior
to the Closing Date. Purchaser shall have received an Officer`s Certificate
executed by the chief executive officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by Purchaser, including but not limited to
certificates with respect to the Company and
20
Subsidiary Corporate Documents, resolutions relating to the transactions
contemplated hereby and the incumbencies of certain officers and Directors
of the Company. The form of such certificate is attached hereto as Exhibit
D;
(e) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary or
desirable in connection with the issuance and exchange of the Securities
and the consummation of the transactions contemplated by the Transaction
Agreements;
(f) All applicable waiting periods in respect to the issuance and
exchange of the Securities shall have expired without any action having
been taken by any competent authority that could restrain, prevent or
impose any materially adverse conditions thereon or that could seek or
threaten any of the foregoing;
(g) No law or regulation shall have been imposed or enacted that, in
the judgment of Purchaser, could adversely affect the transactions set
forth herein or in the other Transaction Agreements, and no law or
regulation shall have been proposed that in the reasonable judgment of
Purchaser could reasonably have any such effect;
(h) Purchaser shall have received an opinion, dated the Closing
Date, of counsel to the Company, in form and substance satisfactory to
Purchaser;
(i) All fees and expenses due and payable by the Company on or prior
to the Closing Date shall have been paid;
(j) The Company Corporate Documents and the Subsidiary Corporate
Documents, if any, shall be in full force and effect and no term or
condition thereof shall have been amended, waived or otherwise modified
without the prior written consent of Purchaser;
(k) There shall have occurred no material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or any Subsidiary since August 31,
2004;
(l) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect this Agreement or any other Transaction Agreement, or other
transaction contemplated hereby or thereby or that could reasonably be
expected to have a Material Adverse Effect, or any material adverse effect
on the enforceability of the Transaction Agreements or the Securities or
the rights of the holders of the Securities or Purchaser hereunder;
21
(m) Purchaser shall have confirmed the receipt of the Secured Note
to be issued, duly executed by the Company in the denominations and
registered in the name of Purchaser;
(n) There shall not have occurred any disruption or adverse change
in the financial or capital markets generally, or in the market for the
Common Stock (including but not limited to any suspension or delisting),
which Purchaser reasonably deems material in connection with the purchase
of the Securities;
(o) As of the Closing Date, no Default or Event of Default shall
have occurred and be continuing;
(p) Company shall have delivered Eight Million shares (8,000,000) of
Company common stock to be held by Purchaser as additional collateral
pursuant to the Pledge and Security Agreement; and
(q) Company shall have delivered to Purchaser the Use of Proceeds
Schedule 7.8.
Section 6.2 Conditions to the Company`s Obligations. The obligations of the
Company to issue and exchange the Securities to Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to any Closing Date, of
the following conditions:
(a) The representations and warranties of Purchaser contained herein
shall be true and correct in all material respects on the Closing Date and
Purchaser shall have performed and complied in all material respects with
all agreements required by this Agreement to be performed or complied with
by Purchaser at or prior to the Closing Date;
(b) The issue and exchange of the Securities by the Company shall
not be prohibited by any applicable law, court order or governmental
regulation;
(c) Receipt by the Company of duly executed counterparts of this
Agreement and the Registration Rights Agreement signed by Purchaser;
(d) The Company shall have received the Convertible Note for
cancellation;
ARTICLE VII. AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Secured Note remain outstanding and for the benefit of Purchaser:
22
Section 7.1 Information. The Company will deliver to each holder of the
Secured Note:
(a) promptly upon the filing thereof, copies of (i) all registration
statements (other than the exhibits thereto and any registration statements
on Form S-8 or its equivalent), and (ii) all reports of Forms 10-K, 10-Q
and 8-K (or other equivalents) which the Company or any Subsidiary has
filed with the Commission (collectively, "SEC Reports");
(b) simultaneously with the delivery of each item referred to in
clause (a) above, a certificate from the chief financial officer of the
Company stating that no Default or Event of Default has occurred and is
continuing, or, if as of the date of such delivery a Default shall have
occurred and be continuing, a certificate from the Company setting forth
the details of such Default or Event of Default and the action which the
Company is taking or proposes to take with respect thereto;
(c) within two (2) business days after any officer of the Company
obtains knowledge of a Default or Event of Default, or that any Person has
given any notice or taken any action with respect to a claimed Default
hereunder, a certificate of the chief financial officer of the Company
setting forth the details thereof and the action which the Company is
taking or proposed to take with respect thereto;
(d) promptly upon the mailing thereof to the shareholders of the
Company generally, copies of all financial statements, reports and proxy
statements so mailed and any other document generally distributed to
shareholders;
(e) at least two (2) Business Days prior to the consummation of any
Financing or other event requiring a repayment of the Secured Note under
Section 3.4, notice thereof together with a summary of all material terms
thereof and copies of all documents and instruments associated therewith;
(f) notice promptly upon the occurrence of any event by which the
Reserved Amount becomes less than the maximum number of Warrant Shares
issuable pursuant to the Transaction Agreements; and
(g) promptly following the commencement thereof, notice and a
description in reasonable detail of any litigation or proceeding to which
the Company or any Subsidiary is a party in which the amount involved is
$250,000 or more and not covered by insurance or in which injunctive or
similar relief is sought.
Section 7.2 Payment of Obligations. The Company will, and will cause each
Subsidiary to, pay and discharge, at or before maturity, all their respective
material obligations, including, without limitation, tax liabilities, except
where the same may be contested in good faith by
23
appropriate proceedings and will maintain, in accordance with GAAP, appropriate
reserves for the accrual of any of the same.
Section 7.3 Maintenance of Property; Insurance. The Company will, and will
cause each Subsidiary to, keep all property useful and necessary in its business
in good working order and condition, ordinary wear and tear excepted. In
addition, the Company and each Subsidiary will maintain insurance in at least
such amounts and against such risks as it has insured against as of the Closing
Date.
Section 7.4 Maintenance of Existence. The Company will, and will cause each
Subsidiary to, continue to engage in business of the same general type as now
conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
Section 7.5 Compliance with Laws. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company or such Subsidiary.
Section 7.6 Inspection of Property, Books and Records. The Company will,
and will cause each Subsidiary to, keep proper books of record and account in
which full, true and correct entries shall be made of all dealings and
transactions in relation to their respective businesses and activities; and will
permit, during normal business hours, Purchaser`s Representative or an affiliate
thereof, as representatives of Purchaser and representatives of the Small
Business Administration, to visit and inspect any of their respective
properties, upon reasonable prior notice, to examine and make abstracts from any
of their respective books and records and to discuss their respective affairs,
finances and accounts with their respective executive officers and independent
public accountants (and by this provision the Company authorizes its independent
public accountants to disclose and discuss with Purchaser the affairs, finances
and accounts of the Company and its Subsidiaries in the presence of a
representative of the Company; provided, however, that such discussions will not
result in any unreasonable expense to the Company, without Company consent), all
at such reasonable times.
Section 7.7 Investment Company Act. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
24
Section 7.8 Use of Proceeds. The proceeds from the issuance and sale of the
Convertible Note by the Company shall be used for the domestic purposes set
forth in Schedule 7.8 attached hereto. None of the proceeds from the issuance
and sale of the Convertible Note by the Company pursuant to this Agreement will
be used directly or indirectly for the purpose, whether immediate, incidental or
ultimate, of purchasing or carrying any"margin stock" within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System.
Section 7.9 Compliance with Terms and Conditions of Material Contracts. The
Company will, and will cause each Subsidiary to, comply, in all respects, with
all terms and conditions of all material contracts to which it is subject.
Section 7.10 Reserved Shares and Listings.
(a) The Company shall at all times have authorized, and reserved for the
purpose of issuance, a sufficient number of shares of Common Stock to provide
for the issuance of the Warrant Shares based on the exercise price of the
Warrant (the "Reserved Amount"). The Company shall not reduce the Reserved
Amount without the prior written consent of Purchaser. If at any time the number
of shares of Common Stock authorized and reserved for issuance is below the
number of Warrant Shares issued or issuable upon exercise of the Warrants, the
Company will promptly take all corporate action necessary to authorize and
reserve a sufficient number of shares, by calling a special meeting of
shareholders to authorize additional shares, in the case of an insufficient
number of authorized shares.
(b) The Company will maintain the listing and trading of its Common Stock
on the OTC Bulletin Board. The Company will comply in all respects with the
Company`s reporting, filing and other obligations under the bylaws or rules of
the National Association of Securities Dealers, Inc. (the "NASD") and such
exchanges, as applicable. The Company shall promptly provide to Purchaser copies
of any notices it receives from Nasdaq regarding the continued eligibility of
the Common Stock for listing on the OTC Bulletin Board or any National Market,
as applicable.
Section 7.11 Transfer Agent Instructions. Upon receipt of a Notice of
Exercise, the Company shall immediately direct the Company's transfer agent to
issue certificates, registered in the name of Purchaser or its nominee, for the
Warrant Shares, in such amounts as specified from time to time by Purchaser to
the Company upon proper exercise of the Warrant. Upon exercise of any Warrant in
accordance with their terms the Company will, and will use its best lawful
efforts to cause its transfer agent to, issue one or more certificates
representing shares of Common Stock in such name or names and in such
denominations specified by a Purchaser in a Notice of Exercise. As long as the
Registration Statement contemplated by the Registration Rights Agreement shall
remain effective, the shares of Common Stock issuable upon exercise of any
Warrant shall be issued to any transferee of such shares from Purchaser without
any restrictive legend upon appropriate evidence of transfer in compliance with
the Securities Act and the rules and regulations of the Commission; provided
that for so long as the Registration Statement is effective, no opinion of
counsel will be
25
required to effect any such transfer. The Company further warrants and agrees
that no instructions other than these instructions have been or will be given to
its transfer agent. Nothing in this Section 7.11 shall affect in any way a
Purchaser`s obligation to comply with all securities laws applicable to
Purchaser upon resale of such shares of Common Stock, including any prospectus
delivery requirements.
Section 7.12 Maintenance of Reporting Status; Supplemental Information. So
long as any of the Securities are outstanding, the Company shall timely file all
reports required to be filed with the Commission pursuant to the Exchange Act.
The Company shall not terminate its status as an issuer required to file reports
under the Exchange Act, even if the Exchange Act or the rules and regulations
thereunder would permit such termination. If at anytime the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
Section 7.13 Form D; Blue Sky Laws. The Company agrees to file a "Form D"
with respect to the Securities as required under Regulation D of the Securities
Act and to provide a copy thereof to Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for exchange
with Purchaser at the Closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to Purchaser on or prior to the Closing Date.
Section 7.14 Certain Payments. The Company agrees to pay all title
insurance, filing, recordation or other fees, including any taxes, relating to
the execution and perfection of the security interest and to cooperate with
Purchaser in connection with filing the appropriate documents for the perfection
of such security interest.
ARTICLE VIII. NEGATIVE COVENANTS
The Company hereby agrees that from and after the date hereof for so long
as any Secured Note remain outstanding and for the benefit of Purchaser:
Section 8.1 Limitations on Debt or Other Liabilities. Neither the Company
nor any Subsidiary will create, incur, assume or suffer to exist (at any time
after the Closing Date, after giving effect to the application of the proceeds
of the issuance of the Securities) (i) any Debt except (x) Debt incurred in a
Permitted Financing, (y) Debt incurred in connection with equipment leases to
which the Company or its Subsidiaries are a party incurred in the ordinary
course of business; and (z) Debt
26
incurred in connection with trade accounts payable, imbalances and refunds
arising in the ordinary course of business.
Section 8.2 Transactions with Affiliates. The Company and each Subsidiary
will not, directly or indirectly, pay any funds to or for the account of, make
any investment (whether by acquisition or stock or indebtedness, by loan,
advance, transfer of property, guarantee or other agreement to pay, purchase or
service, directly or indirectly, and Debt, or otherwise) in, lease, sell,
transfer or otherwise dispose of any assets, tangible or intangible, to, or
participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, (1) pursuant
to those agreements specifically identified on Schedule 8.2 attached hereto
(with a copy of such agreements annexed to such Schedule 8.2) and (2) on terms
to the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company upon negotiation at arms` length, as determined in good
faith by the Board of Directors of the Company; provided that no determination
of the Board of Directors shall be required with respect to any such
transactions entered into in the ordinary course of business.
Section 8.3 Merger or Consolidation. The Company will not, in a single
transaction or a series of related transactions (i) consolidate with or merge
with or into any other Person, or (ii) permit any other Person to consolidate
with or merge into it, unless the Company shall be the survivor of such merger
or consolidation and (x) immediately before and immediately after given effect
to such transaction (including any indebtedness incurred or anticipated to be
incurred in connection with the transaction), no Default or Event of Default
shall have occurred and be continuing; and (y) the Company has delivered to
Purchaser an Officer`s Certificate stating that such consolidation, merger or
transfer complies with this Agreement, and that all conditions precedent in this
Agreement relating to such transaction have been satisfied.
Section 8.4 Limitation on Asset Sales. Neither the Company nor any
Subsidiary will consummate an Asset Sale of material assets of the Company or
any Subsidiary without the prior written consent of Purchaser, which consent
shall not be unreasonably withheld. As used herein, "Asset Sale" means any sale,
lease, transfer or other disposition (or series of related sales, leases,
transfers or dispositions) or sales of capital stock of a Subsidiary (other than
directors` qualifying shares), property or other assets (each referred to for
the purpose of this definition as a "disposition"), including any disposition by
means of a merger, consolidation or similar transaction other than a disposition
of property or assets at fair market value in the ordinary course of business.
Section 8.5 Restrictions on Certain Amendments. Neither the Company nor any
Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity`s existing Debt, any material contract or agreement
previously or hereafter filed by the Company with the Commission as part of its
SEC Reports, any Company Corporate Document or Subsidiary Corporate Document if
such amendment, in the Company`s reasonable judgment, would materially
27
adversely affect Purchaser or the holders of the Securities without the prior
written consent of Purchaser.
Section 8.6 Restrictions on Issuances of Securities.
(a) In addition to and not in lieu of the covenant specified in
Section 8.1 above:
(1) Beginning on the Closing Date and continuing until 180 days
following the date on which the Registration Statement becomes
effective, the Company agrees that it will not, without the prior
written consent of Purchaser, issue any of its equity securities (or
securities convertible into or exchangeable or exercisable for equity
securities (the "Derivative Securities")) on terms that allow a holder
thereof to acquire such equity securities (or Derivative Securities)
at a discount to the Market Price of the Common Stock at the time of
issuance or, in the case of Derivative Securities, at a conversion
price based on any formula (other than standard anti-dilution
provisions) based on the Market Price on a date later than the date of
issuance which is below the Market Price on the date of issuance (each
such event, a "Discounted Equity Offering") other than (i) borrowings
under conventional credit facilities existing as of the date hereof,
(ii) stock issued or credit facilities to be established in connection
with acquisitions, (iii) equity securities or Derivative Securities in
connection with employee and director stock option and stock purchase
plans or those certain option agreements set forth on Schedule 8.6 and
(iv) securities issued under the Warrants. As used herein, "discount"
shall include, but not be limited to, (i) any warrant, right or other
security granted or offered in connection with such issuance which, on
the applicable date of grant, is offered with an exercise or
conversion price, as the case may be, at less than the then current
Market Price of the Common Stock or, if such security has an exercise
or conversion price based on any formula (other than standard
anti-dilution provisions) based on the Market Price on a date later
than the date of issuance, then at a price below the Market Price on
such date of exercise or conversion, as the case may be, or (ii) any
commissions, fees or other allowances paid in connection with such
issuances (other than customary underwriter or placement agent
commissions, fees or allowances). For the purposes of determining the
Market Price at which Common Stock is acquired under this Section,
normal underwriting commissions and placement fees (including
underwriters` warrants) shall be excluded. Notwithstanding the
foregoing, the Company may enter into the following types of
transactions (collectively referred to as "Permitted Financings"): (1)
"permanent financing" transactions, which would include any form of
debt or equity financing (other than an underwritten offering), which
is followed by a reduction of the said financing commitment to zero
and payment of all related fees and expenses; (2) "project financing"
which provide for the issuance of recourse debt instruments in
connection with the operation of the
28
Company's business as presently conducted or as proposed to be
conducted; (3) an underwritten offering of Common Stock, provided that
such offering provides for the registration of the Conversion Shares
if the Registration Statement has not been declared effective; and (4)
other financing transactions specifically consented to in writing by
the Purchaser.
(2) The 180-day restrictive period set forth in paragraph (1)
of this Section 8.6(a) shall be increased by one day for each day a
Registration Default has occurred and not been cured by the Company.
(b) Until such time as all of the Secured Note has been either
redeemed or converted into Common Stock of the Company in full, the Company
agrees it will not issue any of its equity securities (or Derivative
Securities), unless any shares of Common Stock issued or issuable in
connection therewith are "restricted securities." As used herein
"restricted securities" shall mean securities which may not be sold prior
to twelve(12) months following the date of issuance of such securities by
virtue of contractual restrictions imposed by the Company or otherwise.
Section 8.7 Limitation on Stock Repurchases. Except as otherwise set forth
in the Secured Note, the Company shall not, without the written consent of the
Majority Holders, redeem, repurchase or otherwise acquire (whether for cash or
in exchange for property or other securities or otherwise) any shares of capital
stock of the Company or any warrants, rights or options to purchase or acquire
any such shares.
Section 8.8 No Short Sales. Purchaser and its Affiliates have not, within
the thirty (30) day period prior to the Closing Date, and each agree that it
will not, directly or indirectly, engage in any securities transactions to
"short" the Company`s Common Stock prior to any conversion of the Convertible
Note.
ARTICLE IX. RESTRICTIVE LEGENDS
Section 9.1 Restrictions on Transfer. From and after their respective dates
of issuance, none of the Securities shall be transferable except upon the
conditions specified in this Article IX, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Article IX.
Section 9.2 Notice of Proposed Transfers. Prior to any proposed Transfer of
the Securities (other than a Transfer (i) registered or exempt from registration
under the Securities Act, (ii) to an affiliate of a Purchaser which is an
"accredited investor" within the meaning of Rule 501(a) under the
29
Securities Act, provided that any such transferee shall agree to be bound by the
terms of this Agreement and the Registration Rights Agreement, or (iii) to be
made in reliance on Rule 144 under the Securities Act), the holder thereof shall
give written notice to the Company of such holder`s intention to effect such
Transfer, setting forth the manner and circumstances of the proposed Transfer,
which shall be accompanied by (A) an opinion of counsel reasonably acceptable to
the Company, confirming that such transfer does not give rise to a violation of
the Securities Act, (B) representation letters in form and substance reasonably
satisfactory to the Company to ensure compliance with the provisions of the
Securities Act and (C) letters in form and substance reasonably satisfactory to
the Company from each such transferee stating such transferee`s agreement to be
bound by the terms of this Agreement and the Registration Rights Agreement. Such
proposed Transfer may be effected only if the Company shall have received such
notice of transfer, opinion of counsel, representation letters and other letters
referred to in the immediately preceding sentence, whereupon the holder of such
Securities shall be entitled to Transfer such Securities in accordance with the
terms of the notice delivered by the holder to the Company.
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES
Section 10.1 Liquidated Damages.
(a) The Company shall, and shall use its best efforts to cause its
transfer agent to, issue and deliver shares of Common Stock consistent with
Section 7.11 hereof within four (4) New York Stock Exchange Trading Days of
delivery of a Notice of Exercise (the "Deadline") to Purchaser (or any
party receiving Securities by transfer from Purchaser) at the address of
Purchaser set forth in the Notice of Exercise, as the case may be. The
Company understands that a delay in the issuance of such certificates after
the Deadline could result in economic loss to Purchaser.
(b) Without in any way limiting Purchaser`s right to pursue other
remedies, including actual damages and/or equitable relief, the Company
agrees that if delivery of the Warrant Shares is more than one (1) Business
Day after the Deadline the Company shall pay to Purchaser, as liquidated
damages and not as a penalty, $500 for each $100,000 principal amount of
Secured Note then outstanding per day in cash, for each of the first ten
days following the Deadline that the Company fails to deliver such Common
Stock, and $1,000 for each $100,000 principal amount of Secured Note then
outstanding per day in cash, for each day thereafter the Company fails to
deliver such Common Stock. Such cash amount shall be paid to Purchaser upon
demand.
Section 10.2 Exercise Notice. The Company agrees that, in addition to any
other remedies which may be available to Purchaser, including, but not limited
to, the remedies available under Section 10.1, in the event the Company fails
for any reason (other than as a result of actions taken by a Purchaser in breach
of this Agreement) to effect delivery to a Purchaser of certificates with or
30
without restrictive legends as contemplated by Article IX representing the
shares of Common Stock on or prior to the Deadline after exercise of any
Warrant, Purchaser will be entitled, if prior to the delivery of such
certificates, to revoke the Notice of Exercise, by delivering a notice to such
effect to the Company whereupon the Company and Purchaser shall each be restored
to their respective positions immediately prior to delivery of such Notice of
Exercise.
Section 10.3 Reserved.
Section 10.4 Registration Rights.
(a) The Company shall grant Purchaser registration rights covering
the Warrant Shares (the "Registrable Securities") on the terms set forth in
the Registration Rights Agreement and herein.
The Company shall prepare and file within forty-five (45) days of the
Closing Date (the "Filing Date"), a registration statement (the
"Registration Statement") to register a sufficient number of Common Stock
to cover the resale of the Registrable Securities. In the event the Company
fails to file the Registration statement by the Filing Date, the Company
shall pay Purchaser as liquidated damages, and not as a penalty, an amount
of cash equal to one percent of the aggregate principal amount of Secured
Note then outstanding per day until the Registration Statement is filed
with the Commission. The Company shall use its best efforts to cause the
Registration Statement to be declared effective by the Commission on the
earlier of (i) 120 days following the Filing Date or (ii) ten days
following the receipt of a "no review" or similar letter from the
Commission (the "Required Effectiveness Date"). The Company shall pay all
expenses of registration (other than underwriting fees and discounts, if
any, in respect of Registrable Securities offered and sold under such
registration statement by Purchaser).
(b) If the Registration Statement is not filed by the Filing Date or
not declared effective by the Commission by the Required Effectiveness
Date, the Company shall pay to Purchaser, as liquidated damages and not as
a penalty, an amount equal to 2% of the outstanding principal amount of the
Secured Note, prorated, for each 30 day period the Registration Statement
is not filed or declared effective by the Commission, as the case may be,
which amount will be increased to 3% of the outstanding principal amount of
the Secured Note in the event that the Registration Statement is not
declared effective by the Commission within 120 days of the Filing Date.
Additionally, the Company will grant to Purchaser certain piggyback
registration rights in the event the Company proposes to effect a
registered offering of Common Stock or warrants or both prior to the filing
of the Registration Statement referenced above.
31
(c) Any such liquidated damages shall be paid in cash by the Company
to Purchaser by wire transfer in immediately available funds on the last
day of each calendar week following the event requiring its payment.
(d) If, following the declaration of effectiveness of the
Registration Statement, such registration statement (or any prospectus or
supplemental prospectus contained therein) shall cease to be effective for
any reason (including but not limited to the occurrence of any event that
results in any prospectus or supplemental prospectus containing an untrue
statement of a material fact or omitting a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading) for
the period required in the Registration Rights Agreement (the "Registration
Maintenance Period"), the Company fails to file required amendments to the
Registration Statement in order to allow the Purchaser to exercise its
rights to receive unrestricted, unlegended, freely tradeable shares of
Common Stock, or if for any reason there are insufficient shares of such
shares of Common Stock registered under the then current Registration
Statement to effect full exercise of the Secured Note (each a "Registration
Default"), the Company shall immediately take all necessary steps to cause
the Registration Statement to be amended or supplemented so as to cure such
Registration Default. Failure to cure a Registration Default within ten
(10) business days shall result in the Company paying to Purchaser
liquidated damages at the rate of $1,000 per day from the date of such
Registration Default until the Registration Default is cured.
ARTICLE XI. ADJUSTMENT OF FIXED PRICE
Section 11.1 Reorganization. The Exercise Price of the Warrants (the "Fixed
Price") shall be adjusted, as applicable, as hereafter provided.
Section 11.2 Share Reorganization. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a greater
number of shares;
(ii) consolidate the outstanding shares of Common Stock into a
smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
32
(iv) make a distribution on the outstanding Common Stock to all or
substantially all the holders of Common Stock payable in Common Stock or
securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization," then in each
such case the Fixed Price shall be adjusted, effective immediately after the
record date at which the holders of Common Stock are determined for the purposes
of the Share Reorganization or, if no record date is fixed, the effective date
of the Share Reorganization, by multiplying the Fixed Price in effect on such
record or effective date, as the case may be, by a fraction of which:
(I) the numerator shall be the number of shares of Common Stock
outstanding on such record or effective date (without giving effect to the
transaction); and
(II) the denominator shall be the number of shares of Common Stock
outstanding after giving effect to such Share Reorganization, including, in
the case of a distribution of securities convertible into or exchangeable
for shares of Common Stock, the number of shares of Common Stock that would
have been outstanding if such securities had been converted into or
exchanged for Common Stock on such record or effective date.
Section 11.3 Rights Offering. If and whenever the Company shall issue to
all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than 45 days after the record date of such issue, to subscribe for or
purchase Common Stock (or Derivative Securities), at a price per share (or, in
the case of securities convertible into or exchangeable for Common Stock, at an
exchange or exercise price per share at the date of issue of such securities) of
less than 95% of the Market Price of the Common Stock on such record date (any
such event being herein called a "Rights Offering"), then in each such case the
Fixed Price shall be adjusted, effective immediately after the record date at
which holders of Common Stock are determined for the purposes of the Rights
Offering, by multiplying the Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such record
date; and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of Common
Stock so offered for subscription or purchase and the price at
which such shares are so offered, or
33
(y) the product of the maximum number of shares of Common
Stock into or for which the convertible or exchangeable
securities so offered for subscription or purchase may be
converted or exchanged and the exercise or exchange price of
such securities, or, as the case may be, by
(B) the Market Price of the Common Stock on such record date;
and
(ii) the denominator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such record
date; and
(II) the number of shares of Common Stock so offered for subscription
or purchase (or, in the case of Derivative Securities, the maximum number
of shares of Common Stock for or into which the securities so offered for
subscription or purchase may be converted or exchanged).
To the extent that such rights, options or warrants are not exercised prior to
the expiry time thereof, the Fixed Price shall be readjusted effective
immediately after such expiry time to the Fixed Price which would then have been
in effect upon the number of shares of Common Stock (or Derivative Securities)
actually delivered upon the exercise of such rights, options or warrants.
Section 11.4 Special Distribution. If and whenever the Company shall issue
or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the Fixed Price shall be adjusted,
effective immediately after the record date at which the holders of Common Stock
are determined for purposes of the Special Distribution, by multiplying the
Fixed Price in effect on such record date by a fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common
Stock on such date; and
34
(B) the fair market value, as determined by the Directors
(whose determination shall be conclusive), to the holders of Common
Stock of the shares, rights, options, warrants, evidences of
indebtedness or other assets issued or distributed in the Special
Distribution (net of any consideration paid therefor by the holders of
Common Stock), and
(ii) the denominator shall be the product of the number of shares of
Common Stock outstanding on such record date and the Market Price of the
Common Stock on such date.
Section 11.5 Capital Reorganization. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the shares of Common Stock into other shares, other
than in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with, or
into another body corporate; or
(iii) the transfer of all or substantially all of the assets of the
Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Secured Note after the
effective date of such Capital Reorganization shall be entitled to receive and
shall accept, upon the exercise of such right, in lieu of the number of shares
of Common Stock to which such holder was theretofore entitled upon the exercise
of the exercise privilege, the aggregate number of shares or other securities or
property of the Company or of the body corporate resulting from such Capital
Reorganization that such holder would have been entitled to receive as a result
of such Capital Reorganization if, on the effective date thereof, such holders
had been the holder of the number of shares of Common Stock to which such holder
was theretofore entitled upon exercise; provided, however, that no such Capital
Reorganization shall be consummated in effect unless all necessary steps shall
have been taken so that such holders shall thereafter be entitled to receive
such number of shares or other securities of the Company or of the body
corporate resulting from such Capital Reorganization, subject to adjustment
thereafter in accordance with provisions the same, as nearly as may be possible,
as those contained above.
Section 11.6 Purchase Price Adjustments. In case at any time and from time
to time the Company shall issue any shares of Common Stock or Derivative
Securities convertible or exercisable for shares of Common Stock (the number of
shares so issued, or issuable upon exercise or exercise of such Derivative
Securities, as applicable, being referred to as "Additional Shares of Common
Stock") for consideration less than the then Market Price at the date of
issuance of such shares of Common Stock or such Derivative Securities, in each
such case the Exercise Price shall, concurrently
35
with such issuance, be adjusted by multiplying the Exercise Price immediately
prior to such event by a fraction: (i) the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to the issuance
of such Additional Shares of Common Stock plus the number of shares of Common
Stock that the aggregate consideration received by the Company for the total
number of such Additional Shares of Common Stock so issued would purchase at the
Market Price and (ii) the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to the issuance of Additional Shares
of Common Stock plus the number of such Additional Shares of Common Stock so
issued or sold.
Section 11.7 Adjustment Rules. The following rules and procedures shall be
applicable to adjustments made in this Article XI:
(a) no adjustment in the Fixed Price shall be required unless such
adjustment would result in a change of at least 1% in the Fixed Price then
in effect, provided, however, that any adjustments which, but for the
provisions of this clause would otherwise have been required to be made,
shall be carried forward and taken into account in any subsequent
adjustment;
(b) if any event occurs of the type contemplated by the adjustment
provisions of this Article XI but not expressly provided for by such
provisions, the Company will give notice of such event as provided herein,
and the Company`s board of directors will make an appropriate adjustment in
the Fixed Price so that the rights of the holders of the applicable
Security shall not be diminished by such event; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the Fixed Price, such dispute shall be conclusively
determined by the auditors of the Company or, if they are unable or
unwilling to act, by a firm of independent chartered accountants selected
by the Directors and any such determination shall be binding upon the
Company and Purchaser.
Section 11.8 Certificate as to Adjustment. The Company shall from time to
time promptly after the occurrence of any event which requires an adjustment in
the Fixed Price deliver to Purchaser a certificate specifying the nature of the
event requiring the adjustment, the amount of the adjustment necessitated
thereby, the Fixed Price after giving effect to such adjustment and setting
forth, in reasonable detail, the method of calculation and the facts upon which
such calculation is based.
Section 11.9 Notice to Holders. If the Company shall fix a record date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of shares),
(b) any Rights Offering,
36
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares),
(e) Sale Event; or
(f) any cash dividend,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to
Purchaser notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE XII. EVENTS OF DEFAULT
Section 12.1 Events of Default. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or repay when due, all or any part
of the principal on any of the Secured Note (whether by virtue of the
agreements specified in this Agreement or the Secured Note);
(b) failure by the Company to pay (i) within five (5) Business Days
of the due date thereof any interest on any Secured Note or (ii) within
five (5) Business Days following the delivery of notice to the Company of
any fees or any other amount payable (not otherwise referred to in (a)
above or this clause (b)) by the Company under this Agreement or any other
Transaction Agreement;
(c) failure by the Company to timely comply with the requirements of
Section 7.11 or 10.1 hereof, which failure is not cured within five (5)
Business Days of such failure;
(d) failure on the part of the Company to observe or perform any
covenant contained in Section 7.10 or Article VIII of this Agreement, which
failure is not cured within five business days of such failure;
(e) failure on the part of the Company to observe or perform any
covenant or agreement contained in any Transaction Agreement (other than
those covered by clauses (a), (b), (c) or (d) above) for 30 days from the
date of such occurrence;
(f) the trading in the Common Stock shall have been suspended by the
Commission, any National Market or the OTC Bulletin Board (except for any
suspension of
37
trading of limited duration solely to permit dissemination of material
information regarding the Company and except if, at the time there is any
suspension on any National Market or the OTC Bulletin Board, the Common
Stock is then listed and approved for trading on another National Market
within ten (10) Trading Days thereof);
(g) reserved;
(h) the Company shall have its Common Stock delisted from a National
Market or the OTC Bulletin Board for at least ten (10) consecutive Trading
Days and is unable to obtain a listing on a National Market or the OTC
Bulletin Board within such ten (10) Trading Days;
(i) the effectiveness of the Registration Statement shall not be
maintained which results in the Company incurring liquidated damages or a
default fee for a period in excess of 30 days;
(j) the Company or any Subsidiary has commenced a voluntary case or
other proceeding seeking liquidation, winding-up, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or
other similar official of it or any substantial part of its property, or
has consented to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other proceeding
commenced against it, or has made a general assignment for the benefit of
creditors, or has failed generally to pay its debts as they become due, or
has taken any corporate action to authorize any of the foregoing;
(k) an involuntary case or other proceeding has been commenced
against the Company or any Subsidiary seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days, or an order for relief
has been entered against the Company or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(l) default in any provision (including payment) or any agreement
governing the terms of any Debt of the Company or any Subsidiary in excess
of $500,000, which has not been cured within any applicable period of grace
associated therewith;
(m) judgments or orders for the payment of money which in the
aggregate at any one time exceed $500,000 and are not covered by insurance
have been rendered against the
38
Company or any Subsidiary by a court of competent jurisdiction and such
judgments or orders shall continue unsatisfied and unstayed for a period of
60 days; or
(n) any representation, warranty, certification or statement made by
the Company in any Transaction Agreement or which is contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with any Transaction Agreement shall prove to have
been untrue in any material respect when made.
then, and in every such occurrence, Purchaser may, with respect to an Event of
Default specified in paragraphs (a) or (b), and the Majority Holders may, with
respect to any other Event of Default, by notice to the Company, declare the
Secured Note to be, and the Secured Note shall thereon become immediately due
and payable; provided that in the case of any of the Events of Default specified
in paragraph (j) or (k) above with respect to the Company or any Subsidiary,
then, without any notice to the Company or any other act by Purchaser, the
entire amount of the Secured Note shall become immediately due and payable,
provided, further, if any Event of Default has occurred and is continuing, and
irrespective of whether any Secured Note has been declared immediately due and
payable hereunder, any Purchaser of Secured Note may proceed to protect and
enforce the rights of Purchaser by an action at law, suit in equity or other
appropriate proceeding, whether for the specific performance of any agreement
contained herein or in any Secured Note, or for an injunction against a
violation of any of the terms hereof or thereof, or in aid of the exercise of
any power granted hereby or thereby or by law or otherwise, and provided
further, in the case of any Event of Default, the amount declared due and
payable on the Secured Note shall be the Formula Price thereof.
Section 12.2 Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to Purchaser is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Secured Note or by law may
be exercised from time to time, and as often as shall be deemed expedient, by
Purchaser.
ARTICLE XIII. MISCELLANEOUS
Section 13.1 Notices. All notices, demands and other communications to any
party hereunder shall be in writing (including telecopier or similar writing)
and shall be given to such party at its address set forth on the signature pages
hereof, or such other address as such party may hereafter specify for the
purpose to the other parties. Each such notice, demand or other communication
shall be effective (i) if given by telecopy, when such telecopy is transmitted
to the telecopy number specified on the signature page hereof, (ii) if given by
mail, four days after such
39
communication is deposited in the mail with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in or pursuant to this Section.
Section 13.2 No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing
and is signed by the Company and the Majority Holders; provided, that
without the consent of each holder of any Secured Note affected thereby, an
amendment or waiver may not (a) reduce the aggregate principal amount of
Secured Note whose holders must consent to an amendment or waiver, (b)
reduce the rate or extend the time for payment of interest on any Secured
Note, (c) reduce the principal amount of or extend the stated maturity of
any Secured Note or (d) make any Secured Note payable in money or property
other than as stated in such Secured Note. In determining whether the
holders of the requisite principal amount of Secured Note have concurred in
any direction, consent, or waiver as provided in any Transaction Agreement,
Secured Note which are owned by the Company or any other obligor on or
guarantor of the Secured Note, or by any Person Controlling, Controlled by,
or under common Control with any of the foregoing, shall be disregarded and
deemed not to be outstanding for the purpose of any such determination; and
provided further that no such amendment, supplement or waiver which affects
the rights of Purchaser and their affiliates otherwise than solely in their
capacities as holders of Secured Note shall be effective with respect to
them without their prior written consent.
Section 13.3 Indemnification.
(a) The Company agrees to indemnify and hold harmless Purchaser, its
Affiliates, and each Person, if any, who controls Purchaser, or any of its
Affiliates, within the meaning of the Securities Act or the Exchange Act
(each, a "Controlling Person"), and the respective partners, agents,
employees, officers and Directors of Purchaser, their Affiliates and any
such Controlling Person (each an"Indemnified Party") and collectively, the
"Indemnified Parties"), from and against any and all losses, claims,
damages, liabilities and expenses (including, without limitation and as
incurred, reasonable costs of investigating, preparing or defending any
such claim or action, whether or not such Indemnified Party is a party
thereto, provided that the Company shall not be obligated to advance such
costs to any Indemnified Party other than Purchaser unless it has received
from such Indemnified Party an undertaking to repay to the Company the
costs so advanced if it should be determined by final judgment of a court
of competent jurisdiction that such Indemnified Party was not entitled to
indemnification
40
hereunder with respect to such costs) which may be incurred by such
Indemnified Party in connection with any investigative, administrative or
judicial proceeding brought or threatened that relates to or arises out of,
or is in connection with any activities contemplated by any Transaction
Agreement or any other services rendered in connection herewith; provided
that the Company will not be responsible for any claims, liabilities,
losses, damages or expenses that are determined by final judgment of a
court of competent jurisdiction to result from such Indemnified Party`s
gross negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in
writing and the Company, at its option, may, assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Company shall not affect any obligations the
Company may have to such Indemnified Party under this Agreement or
otherwise unless the Company is materially adversely affected by such
failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified
Party, unless (i) the Company has failed to assume the defense and employ
counsel or (ii) the named parties to any such action (including any
impleaded parties) include such Indemnified Party and the Company, and such
Indemnified Party shall have been advised by counsel that there may be one
or more legal defenses available to it which are different from or
additional to those available to the Company, in which case, if such
Indemnified Party notifies the Company in writing that it elects to employ
separate counsel at the expense of the Company, the Company shall not have
the right to assume the defense of such action or proceeding on behalf of
such Indemnified Party, provided, however, that the Company shall not, in
connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances,
be responsible hereunder for the reasonable fees and expenses of more than
one such firm of separate counsel, in addition to any local counsel, which
counsel shall be designated by Purchaser. The Company shall not be liable
for any settlement of any such action effected without the written consent
of the Company (which shall not be unreasonably withheld) and the Company
agrees to indemnify and hold harmless each Indemnified Party from and
against any loss or liability by reason of settlement of any action
effected with the consent of the Company. In addition, the Company will
not, without the prior written consent of Purchaser, settle or compromise
or consent to the entry of any judgment in or otherwise seek to terminate
any pending or threatened action, claim, suit or proceeding in respect to
which indemnification or contribution may be sought hereunder (whether or
not any Indemnified Party is a party thereto) unless such settlement,
compromise, consent or termination includes an express unconditional
release of Purchaser and the other Indemnified Parties, satisfactory in
form and substance to Purchaser, from all liability arising out of such
action, claim, suit or proceeding.
41
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to hold an Indemnified Party harmless,
then in lieu of indemnifying such Indemnified Party, the Company shall
contribute to the amount paid or payable by such Indemnified Party as a
result of such claims, liabilities, losses, damages, or expenses (i) in
such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and by Purchaser on the other from the
transactions contemplated by this Agreement or (ii) if the allocation
provided by clause (i) is not permitted under applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
received by the Company on the one hand and Purchaser on the other, but
also the relative fault of the Company and Purchaser as well as any other
relevant equitable considerations. Notwithstanding the provisions of this
Section 13.3, the aggregate contribution of all Indemnified Parties shall
not exceed the amount of interest and fees actually received by Purchaser
pursuant to this Agreement. It is hereby further agreed that the relative
benefits to the Company on the one hand and Purchaser on the other with
respect to the transactions contemplated hereby shall be determined by
reference to, among other things, whether any untrue or alleged untrue
statement of material fact or the omission or alleged omission to state a
material fact related to information supplied by the Company or by
Purchaser and the parties` relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. No Person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 13.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise; (ii) shall survive the termination of this Agreement and the
other Transaction Agreements and the payment in full of the Secured Note
and (iii) shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of Purchaser or any other
Indemnified Party.
(e) The Purchaser agrees to indemnify the Company and the respective
partners, agents, employees, officers and Directors of Company from and
against any and all losses, claims, damages, liabilities and expenses which
may be incurred by any aforementioned Person in connection with any
investigative, administrative or judicial proceeding that solely relates to
or arises out of, or is in connection with any breach by Purchaser of
Article V herein.
Section 13.4 Reserved.
Section 13.5 Payment. The Company agrees that, so long as Purchaser shall
own any Secured Note purchased by it from the Company hereunder, the Company
will make payments to Purchaser of all amounts due thereon by wire transfer by
4:00 P.M. (E.S.T.).
42
Section 13.6 Successors and Assigns. This Agreement shall be binding upon
the Company and upon Purchaser and its respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
obligations under this Agreement to any other Person without the prior written
consent of the Majority Holders. All provisions hereunder purporting to give
rights to Purchaser and its affiliates or to holders of Securities are for the
express benefit of such Persons and their successors and assigns.
Section 13.7 Reserved.
Section 13.8 NEW JERSEY Law; Submission to Jurisdiction; Waiver of Jury
Trial; Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW JERSEY. EACH PARTY HERETO
HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY AND OF ANY FEDERAL DISTRICT COURT SITTING IN NEW
JERSEY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY TO THIS AGREEMENT IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY
AT ITS ADDRESS SET FORTH HEREIN. NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY
PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW. EACH PARTY WAIVES
ITS RIGHT TO A TRIAL BY JURY.
Section 13.9 Entire Agreement. This Agreement, the Exhibits or Schedules
hereto, which include, but are not limited to the Secured Note, the Registration
Rights Agreement, Pledge and Security Agreement, set forth the entire agreement
and understanding of the parties relating to the subject matter hereof and
supercedes all prior and contemporaneous agreements, negotiations and
understandings between the parties, both oral and written relating to the
subject matter hereof. The terms and conditions of all Exhibits and Schedules to
this Agreement are incorporated herein by this reference and shall constitute
part of this Agreement as is fully set forth herein.
Section 13.10 Survival; Severability. The representations, warranties,
covenants and agreements of the parties hereto shall survive the Closing
hereunder. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision;
43
provided that such severability shall be ineffective if it materially changes
the economic benefit of this Agreement to any party.
Section 13.11 Title and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
Section 13.12 Reporting Entity for the Common Stock. The reporting entity
relied upon for the determination of the trading price or trading volume of the
Common Stock on any given Trading Day for the purposes of this Agreement and all
Exhibits shall be Bloomberg, L.P. or any successor thereto. The written mutual
consent of the Purchaser and the Company shall be required to employ any other
reporting entity.
Section 13.13 Publicity. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and no party shall issue
any such press release or otherwise make any such public statement without the
prior written consent of the other parties, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other parties with prior notice of such public statement.
Notwithstanding the foregoing, the Company shall not publicly disclose the name
of Purchaser without the prior written consent of Purchaser, except to the
extent required by law, in which case the Company shall provide Purchaser with
prior written notice of such public disclosure.
Section 13.14 Counterparts. This Agreement may be executed by telecopy
signatures and in any number of counterparts each of which shall be an original
with the same effect as if the signatures thereto and hereto were upon the same
instrument.
Signature on Following Page
44
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
Donini, Inc.
By: /s/ PETER DEROS
------------------------------------------
Name: Peter Deros
Title: President
Address: 17 Fulton Street
Newark, NJ 07106
Telephone: 973-622-2800
Fax: 973-622-2865
GLOBAL CAPITAL FUNDING GROUP, L.P.
By its General Partner, Global Capital
Management Services, Inc.
By: /s/ LEWIS N. LESTER
------------------------------------------
Name: Lewis N. Lester
Title: President
Address: 106 Colony Park Drive
Suite 900
Cumming, GA 30040
Telephone: (678) 947-0028
Fax: (678) 947-6499
45
Exchange Agreement
Schedule 1.1 Convertible Note
$1,500,000 Principal Amount Convertible Note of the Company, dated as of
June 7, 2004 .
46
TABLE OF CONTENTS
ARTICLE I. DEFINITIONS ................................................... 1
Section 1.1 Definitions ..................................... 1
Section 1.2 Accounting Terms and Determinations ............. 8
ARTICLE II. EXCHANGE OF SECURITIES ........................................ 8
Section 2.1 Exchange of Securities .......................... 9
Section 2.2 Closing.......................................... 9
ARTICLE III. PAYMENT TERMS OF SECURED NOTE ................................. 9
Section 3.1 Payment of Principal and Interest; Payment
Mechanics ....................................... 9
Section 3.2 Payment of Interest ............................. 9
Section 3.3 Voluntary Prepayment ............................ 9
Section 3.4 Mandatory Prepayments ........................... 10
Section 3.5 Prepayment Procedures ........................... 10
Section 3.6 Payment of Additional Amounts ................... 11
ARTICLE IV. REPRESENTATIONS AND WARRANTIES ................................ 13
Section 4.1 Organization and Qualification .................. 13
Section 4.2 Authorization and Execution ..................... 13
Section 4.3 Capitalization .................................. 13
Section 4.4 Governmental Authorization ...................... 14
Section 4.5 Issuance of Shares .............................. 14
Section 4.6 No Conflicts .................................... 15
Section 4.7 Financial Information ........................... 15
Section 4.8 Litigation ...................................... 15
Section 4.9 Compliance with ERISA and other Benefit Plans ... 16
Section 4.10 Environmental Matters ........................... 16
Section 4.11 Taxes ........................................... 17
Section 4.12 Investments, Joint Ventures ..................... 17
Section 4.13 Not an Investment Company ....................... 17
Section 4.14 Full Disclosure ................................. 17
Section 4.15 No Solicitation; No Integration with Other
Offerings ....................................... 17
Section 4.16 Permits ......................................... 17
Section 4.17 Leases .......................................... 18
Section 4.18 Absence of Any Undisclosed Liabilities or
Capital Calls ................................... 18
Section 4.19 Public Utility Holding Company .................. 18
Section 4.20 Intellectual Property Rights .................... 18
I
Section 4.21 Insurance ....................................... 18
Section 4.22 Title to Properties ............................. 19
Section 4.23 Internal Accounting Controls .................... 19
Section 4.24 Reserved ........................................ 19
Section 4.25 Foreign Practices ............................... 19
Section 4.26 Title to Certain Assets ......................... 19
Section 4.27 Subsidiaries .................................... 19
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PURCHASER ................... 20
Section 5.1 Purchaser ....................................... 20
ARTICLE VI. CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES ................ 21
Section 6.1 Conditions Precedent to Purchaser`s Obligations
to Purchase ..................................... 21
Section 6.2 Conditions to the Company`s Obligations ......... 23
ARTICLE VII. AFFIRMATIVE COVENANTS ......................................... 24
Section 7.1 Information ..................................... 24
Section 7.2 Payment of Obligations .......................... 25
Section 7.3 Maintenance of Property; Insurance .............. 25
Section 7.4 Maintenance of Existence ........................ 25
Section 7.5 Compliance with Laws ............................ 25
Section 7.6 Inspection of Property, Books and Records ....... 25
Section 7.7 Investment Company Act .......................... 26
Section 7.8 Use of Proceeds. ................................ 26
Section 7.9 Compliance with Terms and Conditions of Material
Contracts ....................................... 26
Section 7.10 Reserved Shares and Listings .................... 26
Section 7.11 Transfer Agent Instructions ..................... 26
Section 7.12 Maintenance of Reporting Status; Supplemental
Information ..................................... 27
Section 7.13 Form D; Blue Sky Laws ........................... 27
Section 7.14 Certain Payments ................................ 27
ARTICLE VIII. NEGATIVE COVENANTS ............................................ 28
Section 8.1 Limitations on Debt or Other Liabilities ........ 28
Section 8.2 Transactions with Affiliates .................... 28
Section 8.3 Merger or Consolidation ......................... 28
Section 8.4 Limitation on Asset Sales ....................... 28
Section 8.5 Restrictions on Certain Amendments .............. 29
Section 8.6 Restrictions on Issuances of Securities ......... 29
Section 8.7 Limitation on Stock Repurchases ................. 30
Section 8.8 No Short Sales .................................. 30
ii
ARTICLE IX. RESTRICTIVE LEGENDS ........................................... 31
Section 9.1 Restrictions on Transfer ........................ 31
Section 9.2 Notice of Proposed Transfers .................... 31
ARTICLE X. ADDITIONAL AGREEMENTS AMONG THE PARTIES ....................... 31
Section 10.1 Liquidated Damages .............................. 31
Section 10.2 Exercise Notice ................................. 32
Section 10.3 Reserved ........................................ 32
Section 10.4 Registration Rights ............................. 32
ARTICLE XI. ADJUSTMENT OF FIXED PRICE ..................................... 33
Section 11.1 Reorganization .................................. 33
Section 11.2 Share Reorganization ............................ 34
Section 11.3 Rights Offering ................................. 34
Section 11.4 Special Distribution ............................ 35
Section 11.5 Capital Reorganization .......................... 36
Section 11.6 Purchase Price Adjustments ...................... 37
Section 11.7 Adjustment Rules ................................ 37
Section 11.8 ertificate as to Adjustment ..................... 38
Section 11.9 Notice to Holders ............................... 38
ARTICLE XII. EVENTS OF DEFAULT ............................................. 38
Section 12.1 Events of Default. .............................. 38
Section 12.2 Powers and Remedies Cumulative .................. 41
ARTICLE XIII. MISCELLANEOUS ................................................. 41
Section 13.1 Notices ......................................... 41
Section 13.2 No Waivers; Amendments .......................... 41
Section 13.3 Indemnification ................................. 42
Section 13.4 Reserved ........................................ 44
Section 13.5 Payment ......................................... 44
Section 13.6 Successors and Assigns .......................... 44
Section 13.7 Reserved ........................................ 44
Section 13.8 NEW JERSEY Law; Submission to Jurisdiction;
Waiver of Jury Trial; Appointment of Agent ...... 44
Section 13.9 Entire Agreement ................................ 45
Section 13.10 Survival; Severability. ......................... 45
Section 13.12 Reporting Entity for the Common Stock. .......... 45
Section 13.13 Publicity........................................ 45
Section 13.14 Counterparts. ................................... 46
iii
LIST OF SCHEDULES
Schedule 1.1 Convertible Note
Schedule 4.3 Capitalization
Schedule 4.7 Financial Information
Schedule 4.8 Litigation
Schedule 4.12 Investments, Joint Ventures
Schedule 4.27 Subsidiaries
Schedule 7.8 Use of Proceeds
Schedule 8.2 Transactions with Affiliates
iv
LIST OF EXHIBITS
Exhibit A Form of Secured Note
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Solvency Certificate
Exhibit D Form of Officer`s Certificate
Exhibit E Pledge and Security Agreement
v
EXCHANGE AGREEMENT
dated as of
October 1, 2004
by and between
Donini, Inc.
as the Issuer,
and
Global Capital Funding Group, L.P.